The link between economic fluctuations and inequality has received increasing attention in policy debates since the global financial crisis. But evidence about the existence of such a relationship, particularly in developing countries, remains scarce. We use a cross-country approach to investigate how inequality varies during periods of strong economic growth (“good times”) and declines (“bad times”) between 1981 and 2014. Our results suggest that inequality was sensitive to growth conditions in developing countries over this period, falling in “good times” and rising in “bad times”. Importantly, results highlight job creation as an important channel through which growth conditions affect inequality. Additionally, our findings imply a greater role for robust social safety nets and countercyclical policies in mitigating increases in inequality in “bad times”.
